New Zealand Businesses: A Wave of Closures and What It Means for 2025
The first few weeks of 2025 have painted a stark picture for New Zealand’s business landscape. From established retailers like Smith & Caughey’s facing closures to the collapse of EB Games and liquidations at Miniso and Yoyoso, the closures are mounting. This isn’t confined to major cities; Whangārei is also feeling the pinch with the closure of long-standing businesses like Rodney Wayne and Orrs Pharmacy.
The ‘Disappointment Gap’ and Economic Recovery
Economist Shamubeel Eaqub points to a critical factor: the “disappointment gap.” As the economy begins to recover, businesses often anticipate a rapid rebound. However, the reality is often slower, leading to cash flow problems and, ultimately, closures. This sentiment was echoed in the recent Quarterly Survey of Business Opinion (QSBO), where businesses expressed optimism but found the actual improvement lagged behind expectations.
Many businesses made investment and hiring decisions based on projected growth that didn’t materialize, leaving them vulnerable. Eaqub predicts this wave of closures isn’t over yet, but should begin to ease later in the year. It’s a nuanced recovery, with different sectors moving at different paces.
Retail Under Pressure: Christmas Sales and Rising Costs
The retail sector is particularly vulnerable. Carolyn Young, CEO of Retail NZ, highlights a weaker-than-expected Christmas period as a major contributor to the current difficulties. December sales slumped by 12.4%, leaving many retailers unable to cover costs.
Rising cost pressures, including rent and supply chain issues, are exacerbating the problem. Young notes that businesses are increasingly seeking rent reductions and facing difficult decisions regarding restructuring and staff performance. The closure of two national businesses, totaling 61 stores, in the first ten days of the year is a sobering statistic.
The Impact of International Competition and Government Policy
Retail NZ is advocating for government policies that support local businesses and level the playing field with international competitors like Temu and Shein. Some countries, like South Africa and France, have implemented taxes on these platforms to address unfair competition. Young argues that New Zealand businesses are burdened by domestic regulations that their overseas counterparts avoid.
This isn’t just a retail issue. Construction companies, eager for work during the recovery, are often bidding on projects at unsustainable prices, leading to financial difficulties when cost pressures inevitably rise.
The Role of the IRD and the Election Year
Keaton Pronk, an insolvency practitioner at McDonald Vague, anticipates a challenging year for insolvency due to the upcoming general election. Businesses often adopt a “wait and see” approach until the political landscape is clear.
However, the Inland Revenue Department (IRD) is actively pursuing tax debt, which currently stands at around $9 billion – significantly higher than pre-COVID levels. Pronk warns that the IRD will continue to apply pressure to businesses in arrears, leading to more winding-up proceedings. January is traditionally a difficult month for cash flow, with multiple tax obligations due.
Corporate insolvency appointments are already at levels not seen since the 2009 Global Financial Crisis, and Pronk expects this trend to continue into mid-2026. The closures are widespread, affecting all industries and regions.
Looking Ahead: Potential Future Trends
Several trends are likely to shape the future of New Zealand’s business environment:
- Increased Consolidation: Expect to see more mergers and acquisitions as businesses seek to gain economies of scale and strengthen their market position.
- Focus on Digital Transformation: Businesses that haven’t already invested in digital technologies will need to do so to remain competitive. This includes e-commerce, data analytics, and automation.
- Supply Chain Resilience: The disruptions of recent years have highlighted the importance of diversifying supply chains and building resilience.
- Emphasis on Sustainability: Consumers are increasingly demanding sustainable products and practices. Businesses that prioritize sustainability will gain a competitive advantage.
- Government Intervention: Increased pressure on the government to provide support for struggling businesses, potentially through tax relief or regulatory changes.
Did you know?
New Zealand has a high rate of small business ownership, making the economy particularly vulnerable to economic downturns. Supporting small businesses is crucial for overall economic health.
FAQ
Q: What is the ‘disappointment gap’?
A: The ‘disappointment gap’ refers to the difference between businesses’ expectations for economic recovery and the actual pace of improvement.
Q: What is the IRD doing to address tax debt?
A: The IRD is actively pursuing tax debt through winding-up proceedings and other enforcement measures.
Q: What can businesses do to survive the current economic climate?
A: Businesses should focus on conservative financial forecasting, cost control, digital transformation, and building supply chain resilience.
Q: Will the situation improve in 2026?
A: Experts predict the rate of closures will likely slow down towards the end of 2025 and into 2026, but the recovery will be gradual.
Want to learn more about navigating business challenges? Explore our resources on financial planning and business resilience.
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